IPCA Labs' Q4FY18 results (Outperformer) - Soft quarter; Healthy guidance
Q4FY18 result highlights
- Revenues came in lower at Rs7.8bn (+18% yoy) below our estimate of Rs8.2bn. Domestic formulations business grew 18% yoy to Rs3.2bn (inline). Export formulations grew 12% yoy at Rs2.5bn below est of Rs2.98bn. APIs grew 25% yoy to Rs1.9bn vs our est Rs1.69bn.
- GMs improved sequentially at 67.3% (+190bps yoy) vs est of 65.5%. Overheads stood higher by 3% qoq at Rs4.2bn (led by forex loss of Rs70mn vs gain of Rs100mn in Q3FY18 and ~Rs50m supply penalties)
- IPCA reported lower EBITDA sequentially at Rs1.1bn (-32%yoy) vs our est of Rs1.4bn with lower margins of 14% (18.8% Q3) vs est of 17%.
- Other income came at Rs114mn (flat qoq) vs est of Rs59mn. IPCA reported profit of Rs513mn +16% yoy lower vs our est of Rs673mn
- FY19 Guidance: 12-13% revenue growth with +200bps EBITDA margins
Key positives: Higher GMs
Key negatives: Lower export formulations revs, higher cost
Impact on financials: We have reduced our FY19 earnings est by 4% led by lower UK sales and broadly maintained our FY20/21 earnings est
Valuations & view
With multiple challenges across all its business segments over the last 3-4 years, Ipca has been hit by the perfect storm. We see clear signs that the worst is finally behind with the steady improvement outlook across business segments with normalization of domestic business, re-empanelment by the Global Fund, stability in EM currencies and increased likelihood of resolution of FDA issues over next few quarters. Ipca has leveraged the tough times to sharply reduce fixed costs which will magnify the operating leverage once revenue growth resumes. Q2-Q3 FY18 EBITDA performance underline the potential of the earnings recovery. With >Rs23bn branded formulation sales in FY20E, a diversified revenue mix and a solid API based manufacturing base, Ipca is one of more robust mid-cap pharma business models in the industry with strong medium term earnings growth visibility. Maintain Outperformer rating on Ipca with a 24-month target price of Rs920 (18x FY21E EPS). Delay in FDA clearance for manufacturing units remains a key risk.
Ipca Laboratories is engaged in the manufacture, sale and export of pharmaceuticals and pharmaceutical formulations in the form of tablets and capsules, orals and liquids, injectables, basic drugs and intermediates, and psyllium husk. As of Mar 31 2003, Co. operated 4 manufacturing facilities in Ratlam, Indore, Kandla and Athal. Co. also maintained a corporate office, an international division, and a research and development center in Mumbai.
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